In Indonesia, trading activity is currently voluntary, but in the future, companies exceeding a certain emissions cap will be obliged to purchase carbon credits to make up the difference. — The Jakarta Post
JAKARTA: The recent launch of Indonesia’s carbon exchange could drive the business of carbon credit certification as firms and organisations seek to consolidate their sustainability credentials, but experts note that the regulatory framework for this has yet to be completed.
Purchasing carbon credits allows companies to offset their emissions, while the sale of such credits can generate revenue to reward sustainable action.
In either case, the transparency, legality and effectiveness of projects need to be proven through certificates issued by independent parties.
Carbon certification is still a novel concept in Indonesia, but businesses are beginning to become aware of its market potential.
Rizaldy Yudhista, project lead at the Forest Carbon consulting firm, said the carbon credit certification industry in Indonesia was still shaping up, and carbon credit calculation methodologies used elsewhere were not necessarily applicable in Indonesia at this time.
To begin with, the government needed to approve any methodology before it could be used in the field, he told The Jakarta Post.
However, the National Registry System (SRN), the institution in charge of carbon credit certification, needed to be refined to properly evaluate the carbon footprint of logging concessions and bring it in line with international standards as defined in the REDD – Methodology Framework.
The framework was used to estimate emission reductions through afforestation, reforestation and revegetation, and wetlands restoration and conservation, said Rizaldi.
There are two types of markets worldwide. The mandatory market and the voluntary market. The former makes carbon credit purchases mandatory for certain businesses, while the latter allows them to participate in carbon trading if they so wish.
In Indonesia, trading activity is currently voluntary, but in the future, companies exceeding a certain emissions cap will be obliged to purchase carbon credits to make up the difference.
“Although the cap system is not fully established yet, some companies are already seeking carbon credit certification in the voluntary market,” he said, noting that the price of these credits was determined in negotiations between buyers and sellers.
Rizaldy said that the rising number of mandatory market players would drive demand for certification.
While the mandatory market was mainly regulated by the government, as was the case in the European Union and Japan, the voluntary one was overseen by non-governmental organisations based on international standards.
The voluntary purchase of carbon credits allowed buyers to express their company’s commitment to climate action and enlarged the market for developers of carbon offsetting projects, he added.
However, there is an intrinsic financial motive for developers of such projects to sell more credits than their projects are worth by overstating the climate impact and preventing such fraud or greenwashing.
Nizar Zulkarnaen, deputy leader of the natural resources and planning unit at PT Hatfield Indonesia, said his department, as a consultant, was emphasising the importance of sticking to the SRN methodology.
However, he noted that the SRN currently applied only to public administration and lacked a certification procedure for the private sector.
“The current methodology adopted from abroad is more complex and, regrettably, still needs time to be recognised by the Indonesian government,” Nizar said.
Indonesia Carbon Trade Association chairman Riza Suarga said that one thing still lacking in Indonesia’s carbon trade framework was co-benefits, or benefits beyond carbon emission reductions.
According to Riza, carbon trade stakeholders in Indonesia are still assessing the wider environmental and social benefits of carbon credit reduction projects.
“That is why there will be a premium on the price of carbon credits if the climate, community and biodiversity standards are used for project assessment, but there is no standard yet in the SRN for this.
“However, the SRN is still open to improvement.”
Rizaldy mentioned the importance of assessing the credibility of the auditors responsible for validating and verifying carbon credit certification.
As the project validation and verification process under Indonesia’s SRN was still being optimised, auditor credibility had become the primary focus of buyers to ensure that a project’s claimed environmental benefits were genuine.
“In the international voluntary sector, when issuing a methodology for carbon credit certification, it is common to inform the public.
“If Indonesia wishes to venture into this business, it is crucial to have a thorough understanding of the registration system, audit system, standards and methodology employed,” Rizaldy said.
“As for pricing, there is no floor set in the local market. Given the carbon tax rate (which will determine prices), the price per tonne in Indonesia is lower than in the international voluntary market.
“This is due to the limited methodology options,” he added.
Furthermore, he said, the carbon tax rate needed to be at a level that was either equal to or higher than the carbon price on the voluntary market. — The Jakarta Post/ANN
